Executive Compensation plans and Succession Planning

One of the most critical things a business can do is to retain its talent, especially at a top level and develop a comprehensive succession plan. You can lose executives to competitors, your clients, and even outside your industry. The end result is a huge gap that take a lot of time and effort to fix and a tremendous loss to the business owner.

So how do you keep them? Well we know that cash doesn’t work as executives always leave after they get the cash bonus. Generally it is a combination of many things including the goals of the business owner and long term incentive plans generally referred to as “Non-Qualified Executive Compensation Plans” for the executives needed to assist the owner. There are a tremendous amount of options available to an employer in these areas; however, the process generally goes like this.

1) Timeframe - what is the timeframe for the business owner in terms of staying in the business. In addition, do they have a team that has the skill set necessary to either take over the company, or to make a possible buyer want to take over the company.

2) Benefit Design- generally this involves a discussion with Sr. Management to discuss the specifics of what it is you are trying to do.

3) Evaluating the cost and benefits of the plans. These can be financed with company stock, mutual funds or publically traded stock, as well as specialty insurance products.

• How long do you need the executive?
• What is the bonus compensation tied to?
• How do we determine how much bonus?
• What are the compensation levels of the individuals involved?

The critical aspect of these programs is to develop a cost effective program that the executives will see as a strong enough incentive to stay with the business. The stock market will fluctuate, their will always be some bad times in business; however a good incentive program can assist you through a variety of different economic conditions and allow you and your business to flourish.

Even in family owned business, there is generally a need for “balancing out” the program. You need a leader, and you may have family members that will not be involved with the business. In many cases, working with family members can be considerably more challenging then with larger companies, simply because of the family dynamic. A good plan will keep family and non-family members happy and focused.